By Eyanir Chinea and Brian Ellsworth
CARACAS, Jan 22 (Reuters) - Venezuela said on Wednesday it was revamping its 11-year-old currency controls with the creation of a dual-exchange system that authorities vowed would limit rampant embezzlement of oil dollars, but critics pilloried it as a disguised devaluation.
The widely expected reform maintains a preferential rate of 6.3 bolivars to the dollar for essential goods such as food and medicine while more than doubling the volume of dollars offered at a higher rate of around 11.3 bolivars.
Officials offered few clear details about how they would control the black market rate for greenbacks, which is now more than 10 times the preferential rate.
Critics predict the measures will simply spur inflation, which hit 56.2 percent in 2013.
Oil Minister Rafael Ramirez said the new system would crack down on the widespread practice of buying cheap dollars and flipping them on the black market, which diverts hard currency that could be used to address basic needs.
“Should we give dollars to people who resell them on the black market, or should we bring in medicine? Should we give dollars to travelers, or should we bring in food?” said Ramirez, who is also vice president for the economy.
The new measures expand the central bank’s Sicad system of weekly currency auctions by boosting the amount offered to $220 million, from about $100 million.
Expenditures such as travel allowances, airline tickets and remittances previously calculated at the preferential rate will be moved to the less favorable Sicad rate.
Opposition sympathizers flooded the country’s Twitter-sphere with vitriolic messages calling the announcements a disguised devaluation that will boost the cost of living without solving underlying economic problems.
“It looks like a devaluation, it quacks like a devaluation, it hurts like a devaluation: it’s a devaluation,” wrote one bemused tweeter.
Critics say the currency controls are the cornerstone of a failing economic system created by late socialist leader Hugo Chavez that now faces slowing growth, soaring prices and nagging shortages of staple products.
President Nicolas Maduro blames the situation on an “economic war” that he vaguely links to opposition figures and ideological adversaries in Washington, though officials widely recognize that the currency controls are rife with corruption.
Maduro, who has sought to maintain Chavez’s economic legacy of generous social spending and aggressive regulation of private industry, has struggled to keep the economy on track. Venezuelans increasingly complain of soaring prices and shortages of goods ranging from corn flour to toilet paper.
The announcements could further fuel inflation by raising the cost of some goods and services, but could reduce shortages if dollars previously destined for foreign travel are freed up to import food and medicines.
Ramirez on Wednesday said the government forecasts economic growth of 4 percent this year, compared with the 1.6 percent reported in 2013.
Economist Asdrubal Oliveros of Caracas-based Econalitica called the new system a “slow-motion devaluation” that will help shore up state finances by providing more bolivars for dollars sold at the higher rate.
But he said added the measure alone will not resolve the problems created by currency controls and heavy state intervention.
“The currency shortages will continue until the government recognizes that a fixed exchange rate is not the solution,” he wrote on the widely-read website Prodavinci.
Ramirez said the president is preparing a decree that would effectively legalize the black market, which Wall Street analysts have described as the best way to ease economic distortions.
The announcements were nominally positive for investors holding Venezuelan bonds, the most high-yielding of any emerging market notes, because the new system will reduce dollar outflows and thus signals greater ability to service foreign debt.
But the bond market reaction was muted, with the country’s benchmark Global 2027 remaining in negative territory. The black market bolivar rate, however, slipped nearly 10 percent following the news conference, according to one website that attempts to track the price.
Ramirez said the government had created a “dollar budget” that would administer the use of hard currency to ensure it is used for imports that can stimulate the economy and not snatched by shell companies.
He acknowledged that some enterprising foreigners had figured out that by buying bolivars on the black market they could acquire plane tickets at a fraction of the ordinary price due to the huge differential between the two rates.
“We’re not going to allow people to come from other countries to buy cheap plane tickets in bolivars. They can pay for them with dollars,” Ramirez said.
The government has offered few details on how it will address demand for dollars, which far outstrips supply at any rate offered by the government - creating huge queues of citizens and businesses.
Officials said the Sicad rate may fluctuate somewhat from its current level of 11.3, but declined to elaborate. Past Sicad auctions have simply left the rate fixed despite huge demand, pushing many businesses to seek greenbacks on the black market.
Chavez created the currency controls in 2003 after an opposition-led oil industry shutdown meant to force him from power that nearly bankrupted the government.
Over the years, the mechanism left the exchange rate out of step with prices, turning the official rate into more of an accounting fiction than a representation of the bolivar’s value.
The spiraling black market rate, which is reported only by anonymously maintained websites, leaves many items priced so cheaply that it, too, is a poor reflection of economic reality.
A McDonald’s Big Mac Combo costs $25 at the lowest official rate and around $14 at the Sicad rate. At the black market rate, the same meal would cost some $2.